Refund of accumulated ITC for specified goods and capital-goods ITC reversal - entitlement upheld with adjusted amounts

Whether Notification No.20/2018 and Circular No.56/2018 removed the bar on refund of accumulated ITC for specified goods: HC held that Notification No.20/2018 excluded items from Notification No.5/2017 and Circular No.56/2018 made it effective from 1-8-2018, so under Rule 89(5) petitioners were entitled to refund of Rs.22,78,798 on inverted duty turnover; outcome: refund entitlement upheld. Whether reversal of wrongly claimed ITC on capital goods in GSTR-3B precludes refund: HC found Circular No.94/2019 did not bar the claimed refund and that reversal reduced payable refund only by the reversed amount; outcome: respondents must sanction balance refund of Rs.8,06,852 with interest.

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Issues Involved:

1. Eligibility for refund of Input Tax Credit (ITC) under inverted duty tax structure.
2. Legitimacy of filing a second refund application for the same tax period.
3. Reversal of ITC on capital goods and its impact on refund claims.

Summary:

1. Eligibility for Refund of ITC under Inverted Duty Tax Structure:
The petitioners, a textile manufacturing company, are liable to pay GST at 5% on the sale of fabrics while raw materials are taxed at higher rates (12%-28%). They are eligible for a refund of ITC due to the inverted duty tax structure as per section 54(3)(ii) of the GST Act. Initially, Notification No. 5/2017 barred refunds for unutilized ITC on woven and knitted fabrics, but this restriction was lifted by Notification No. 20/2018, making the petitioners eligible for refunds from August 2018 onwards.

2. Legitimacy of Filing a Second Refund Application:
The petitioners filed a refund application on 21.06.2019 and received Rs. 14,71,946/-. However, due to the reversal of wrongly claimed ITC on capital goods, the refund amount was reduced. They filed a second application on 08.08.2019 for the balance amount of Rs. 8,06,852/- under the "any other" category as per Circular No. 94/2019. The authorities rejected this second application, stating that the law does not permit splitting the refund claim for a particular month and that the refund for reversed ITC on capital goods cannot be claimed again.

3. Reversal of ITC on Capital Goods and Its Impact on Refund Claims:
The petitioners reversed ITC on capital goods amounting to Rs. 10,12,188/- in August 2018. This reversal reduced the refund claim automatically. The respondents argued that the reversal in GSTR-3B is binding and cannot be claimed again. The court, however, found that the petitioners were entitled to the full refund amount of Rs. 22,78,798/- as per Rule 89(5) of the CGST Rules and that the GST Portal's restriction was unjustified. The court noted that Circular No. 94/2019 allowed for a one-time measure to claim refunds under the "any other" category when the portal restrictions prevented the full claim.

Conclusion:
The court quashed the orders rejecting the refund and directed the authorities to sanction the refund of Rs. 8,06,852/- with applicable interest. The petition was allowed, and the rule was made absolute to the extent of granting the refund. No order as to costs.

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